6. If the money supply increases by 12%, Real GDP is constant, and velocity is constant, the price level must: a. decrease by 12% b. increase by 12% c. remain constant d. Any of the above is possible
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Step 1: The quantity equation of money is given by $MV = PQ$, where $M$ is the money supply, $V$ is the velocity of money, $P$ is the price level, and $Q$ is the real GDP. Show more…
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1.) The government increases the supply of money by 50%. The quantity equation of money tells us to expect that, in the long run, A.) real GDP will increase 50%. B.) velocity will increase 50%. C.) the price level will increase 50%. D.) the price level will decrease 50%.
Manasvee S.
Say the velocity of money is constant and real GDP grows by 5% per annum. If the Central Bank keeps the money supply constant, you can tell me that: a) Both nominal GDP and the price level will grow 5% per annum b) Both nominal GDP and the price level will grow 0% per annum c) Both nominal GDP and the price level will fall 5% per annum. d) Nominal GDP will grow 5% per annum, the price level will fall 5% per annum. e) Nominal GDP will grow 0% per annum, the price level will grow 5% per annum. f) Nominal GDP will fall 5% per annum, the price level will grow 5% per annum. g) Nominal GDP will grow 5% per annum, the price level will grow 0% per annum. h) Nominal GDP will grow 0% per annum, the price level will fall 5% per annum
Andrew D.
According to the assumptions of the quantity theory of money, "if the money supply decreases by 7 percent, then" a. nominal and real GDP would fall by 7 percent. b. nominal GDP would fall by 7 percent; real GDP would be unchanged. c. nominal GDP would be unchanged; real GDP would fall by 7 percent. d. neither nominal GDP nor real GDP would change.
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